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Note unlike a bond mutual fund which can drop in value if the corporate bonds [current price] drops in value, if you buy an individual corporate band and hold it until maturity, you get full face value (1,000.00). That is with a corporation which has the money and will have the money to pay off that bond in the future (like Microsoft as I said above).
For example the current value of a bond may be $980.00. If you own a bond mutual fund, then the value of that will drop. If you own the individual bond, you will still get $1,000.00 when that bond matures.
More likely is that a very safe good credit rating bond will be selling for more than face value. Like $1080.00 each.
Not much fun holding an individual bond for decades earning 2 -3% in a land of 6 or 7%.
Keep in mind too rates generally rise with inflation so if your living off that interest that shortfall may have you selling bonds off at a loss to fill the income gap.
A rise in rates can be no good for both bond funds or individual bond holders.
A bond fund will have its rates rise over time as bonds are bought and sold so it offsets the fall in
Share price somewhat. An individual bond wont lose principal if held to maturity but that same crappy interest rate never changes over time either.
Holding a bond or owning a bond fund will leave you behind the curve in either case if rates rise.
Dont be mislead by believing your risk free because you bought a bond instead of a bond fund.
Last edited by mathjak107; 07-01-2012 at 06:28 PM..
To be honest at this point in time the rates are so low on short term bonds that unless its part of a bigger overall portfolio its going to pay very very little in the way of yield.
In my own portfolio i really use them as a proxy for cash .they go along with other things that make up a well balanced portfolio.
I would never think of using just short term bonds and cash as my portfolio no matter what i thought the outlook looked like.
The problem i see is the op bet all the money on equities and when gold and treasuries were the big winners he picked the losers.
Now he is again throwing all the money on bonds and cash and again may be picking the next losers.
BTW - Speaking of buying individual bonds, if anyone reading this is interested in doing this (or bond funds), PLEASE read the following book cover to cover before doing so.
You can lose all your money with bonds if a corporation (or city / government) declares bankruptcy. So best you know what you are doing before buying.
The problem i see is the op bet all the money on equities and when gold and treasuries were the big winners he picked the losers.
Now he is again throwing all the money on bonds and cash and again may be picking the next losers.
Confused about your second sentence/paragraph. I posted my husband's investments, which are equities. Didn't say anything about throwing money on bonds and cash. Still invested in equities as of this moment.
oops your correct,it was garther who went 50% bonds and cash.
but the fact is a 100% bet on equities is hoping for one economic out come as well.. the scenerios that played out the last 12 years were ripe for gold and treasuries not equities.
the only one really good for equities is prosperity or the future perception of prosperity.
well thats the scenerio we havent had the last 12 years but investments in treasuries and gold took off under the conditions we did have.
those same conditions may still exist today .
no one knows but if you plan for the other conditions as well and allow for them instead of ruling them out you just might do a lot better if conditions for equities to prosper take longer.
it can take as long as 15 years for cycles to run in equities so they are at the stage where you have a selling point in equities where your just about guaranteed it wont be a loss and that pertains to market risk in funds only.
individual stocks may never come back to where they were.
Last edited by mathjak107; 07-02-2012 at 02:17 AM..
I recommend googling Bogleheads Forum. Fantastic resource and message board. Post your question there and you will get a lot of free solid advice. I happen to agree with their investing philosophy as well.
oops your correct,it was garther who went 50% bonds and cash.
but the fact is a 100% bet on equities is hoping for one economic out come as well.. the scenerios that played out the last 12 years were ripe for gold and treasuries not equities.
the only one really good for equities is prosperity or the future perception of prosperity.
well thats the scenerio we havent had the last 12 years but investments in treasuries and gold took off under the conditions we did have.
those same conditions may still exist today .
no one knows but if you plan for the other conditions as well and allow for them instead of ruling them out you just might do a lot better if conditions for equities to prosper take longer.
it can take as long as 15 years for cycles to run in equities so they are at the stage where you have a selling point in equities where your just about guaranteed it wont be a loss and that pertains to market risk in funds only.
individual stocks may never come back to where they were.
That's why I asked here. I knew what he was doing wasn't working, but I wasn't sure why. We have always heard "buy and hold" and that is what he was doing, and we understood that there would be some losses short term but in the long run it would (should) pay off. But I knew that other people WERE making money even in a down market and he wasn't, and that the econominc climate is different now than it used to be.
I recommend googling Bogleheads Forum. Fantastic resource and message board. Post your question there and you will get a lot of free solid advice. I happen to agree with their investing philosophy as well.
Thanks to you, too. I will go there and read. I guess having limited knowledge worked okay for him as long as the economy was good and he was investing in stocks, but when it changed he didn't know how to adjust for that.
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